4.6 The Statement of Retained Earnings and the Statement of Changes in Equity

Question 1

What is the purpose of the statement of retained earnings?

Answer 1

The statement of retained earnings shows the accumulated earnings (or deficit) of a company, adjusted for net income, dividends paid, and corrections for prior period errors.

Question 2

How are retained earnings presented under ASPE?

Answer 2

Under ASPE, retained earnings are presented in a separate statement and adjusted for net income, dividends, and corrections for errors.

Changes in accounting policy and other adjustments are included.

Question 3

What is Underlying Concept 4.11?

Answer 3

Retrospective application of a change ensures consistency, allowing financial statements for all prior periods to be restated for comparative purposes.

Question 4

What is the journal entry for adjusting retained earnings due to an accounting policy change in PiP 4.7?

Answer 4

Income Tax Receivable 4,000
Retained Earnings 12,000
Inventory 16,000

Question 5

How is a retrospective restatement applied in accounting?

Answer 5

A retrospective restatement applies changes in accounting policies to prior periods, adjusting the beginning balance of retained earnings and restating comparative financial statements.

Question 6

What is the purpose of the statement of changes in equity under IFRS?

Answer 6

The statement of changes in equity reports changes in each equity account and in total shareholders’ equity during the year, including comprehensive income.

Question 7

What must be included in the statement of changes in equity under IFRS?

Answer 7

Total comprehensive income

Effects of retrospective application for each component of equity

A reconciliation of the beginning and ending balances of each equity component, including profit/loss, OCI, and transactions with owners.

Question 8

How is the statement of shareholders’ equity commonly prepared?

Answer 8

It is commonly prepared in columnar form, with columns for each equity account and for total shareholders’ equity.

Question 9

What transactions are included in the statement of changes in equity for Leon’s Furniture Limited?

Answer 9

Dividends declared

Share repurchase plans

Convertible debentures

Treasury shares

Repurchase of common shares